Walter: Has the whole world gone crazy? Am I the only one around here who gives a s*** about the rules? Mark it zero!
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Showing posts with label bank of countrywide lynch. Show all posts
Showing posts with label bank of countrywide lynch. Show all posts
Friday, May 8, 2009
BAC up $2.5 in pre-market trading
Ken Lewis is on CNBC touting the "BoA story", sees the market bottoming out and is generally sunny across most business lines. When asked about the Merrill business lines, apparently "trading is fine" and "investment banking is doing ok... some equity underwritings!"
Sphere: Related Content
Wednesday, April 8, 2009
Ken Lewis: "The Fed Has Been Kind Of A Hero"
In an interview with Fox Business Network, Lewis plants his feet squarely in his mouth while wearing the pinkest of pink too-big-to-fail glasses, claiming again that he will not need any additional capital, putting his job on the line, and squarely contradicting Chris Kotowski and anyone else who can read financial statements and realize that another round of massive equity dilution at BofA is merely a matter of time, probably very short time at that. Additionally, Lewis is seeing BofA as earning $30 billion which is how it should be "in good times." Maybe once the bank marks all its toxic assets down by 15-20 points, and somehow deals with the $150 billion capital deficiency without Lewis losing his job, this idyllic vision could be realized. Speaking of his job, and referring to Whitney's demand that Lewis not join the unemployment benefits line just yet, his response is that he plans to "be in the job [sic] because I want to get us through this." Curious just where Ken will get us to...
Lastly, Ken should not use the word "hero" to describe the Fed: infinite piggy bank that will fund all of his undiligenced M&A and 90 cent mismarked toxic assets is much more appropriate.
The full fox business news interview is presented below: we recommend readers
On what he wants for the future:
“I plan to be in the job because I want to get us through this. I want to be on the other side of it to take advantage of the upside and no bank in the world will be better positioned than we will across all the products and geographies. And I also want to see the TARP money paid back. And then finally, I want to see this bank earn $30 Billion after tax and that’s about what it should be making in good times.”
On Brian Moynihan as a CEO successor:
“He absolutely could be as well as several others on the management team. I think the world of Brian. He’s outstanding. He’s got so much talent. He’s so bright. But, we have a lot of people on my management team that would fit that description as well.”
On differences between Bank of America and Citi:
“I don’t want to bash Citigroup, but there are some striking comparisons. First, I mentioned our core deposit levels. We grew our deposits $42 billion last year. We didn’t have a loss of deposits. We made $4 billion last year after tax. We didn’t lose money. So there are some striking differences. And then finally, when we were asked to go to Washington and asked to take $15 billion of the first TARP money, we had just raised $10 billion in common. We didn’t need more money. We did it for the better good. I feel like I’m living the saying, ‘no good deed goes unpunished’ because it is not a fair comparison.”
On December bonuses paid at Merrill Lynch:
“I can’t talk a lot about it because there’s litigation and I’ve been subpoenaed by the Attorney General of New York and so you can’t speak about your testimonies in those activities but I’ll say what I’ve said before….Merrill Lynch was a separate, publically owned company. We had an agreement where we could advise on incentives but the final agreement was decided on by the board of directors and the chair of the compensation committee and we did not own them until January 1st 2009. And so, that is the explanation I have given in the past and will continue to.
On whether he overpaid for Merrill Lynch:
“We’ll never know. The critics would say we should have waited until Monday and have things fall apart and then get it at a bargain rate but they did have other deal offers out there. And so, we weren’t the only one trying to do a deal. And so, what would have happened, I have no idea. All I know is, I’m very pleased they’re part of the company at the moment.”
On how he feels about the Merrill Lynch acquisition:
“From an overall standpoint, we are very, very pleased that Merrill Lynch has been a part of our company during the first quarter. The timing could not have been better. A number of deals – you mentioned Pfizer and Wyeth, Dow Chemical, that deal we were involved in, the homebuilder deal you mentioned we were involved in. And so, you take the investment banking activity in addition to a lot of debt capital being raised that we participated in and then plus the capital markets activities – it has really been a boost to revenue for Bank of America.”
On whether he will be judged for the Merrill Lynch acquisition:
“That doesn’t bother me as much as making the judgment on a three month basis. This is a very important acquisition for Bank of America and you should judge that over three to five years. But, the point is we haven’t even reported earnings for the three months yet. And so, it seems to me that it’s just a little premature to make a judgment on such a short time frame. That’s the only thing that bothers me.”
On whether he should have disclosed more about Merrill’s losses:
“No, I think we’ve done everything we were supposed to do, and that will come out as we have these cases tried, and I have no doubt that we did the right thing.”
On Merrill Lynch’s toxic assets:
“Well, there’ve been some pretty severe markdowns already, and so we know they’re marked to market in the case that there are markets. And so, we feel we’re going in with a pretty good position and things could improve. So, I feel just as good about the deal as the day we signed it. As you mentioned, once you get past the current event, virtually nobody says that it’s not a good strategic fit and that’s what I’m looking at.”
On the best parts of Merrill Lynch [ed. "best parts"?]:
“On the investment banking side, for instance, obviously we’ve said capital markets activities were a good fit. On the investment banking side, the deals that I mentioned the Pfizer deal and the Dow deal – were deals that neither company would have had the position that we ended up having by themselves. And so, we’re seeing the benefits of being this corporate bank and having the investment banking business on Merrill on top of the investment banking business we already have. And so, we’re seeing real, live evidence in these deals that we’re getting positioned as a result of coming together.”
On what he thinks of the Fed and the TALF program:
“I haven’t really kind of thought through the three years to five years but they have been working, they have been providing liquidity and I think the Fed has been kind of a hero here in terms of providing the liquidity they have and getting interest rates down on mortgages. If they had not done some of the things they have done we’d be in a lot worse shape than we are.
On whether they will separate the role of Chairman and CEO:
“I don’t think the breakup of the Chairman and CEO is necessarily a bad thing, but I don’t think it’s a good thing necessarily either. Think about the 4 or 5 banks that had the massive losses and insurance companies as well – AIG, RBS, Citigroup, UBS – they have 2 common characteristics in 2008: first, the lost tens of billions of dollars – perhaps the most massive losses in the history of the financial services industry – and they had separate chairmen and CEOs. I rest my case. It’s not the be all and end all.”
On his relationship with Obama:
“I had never met him until we got invited to Washington, and so there is no relationship other than having had that conversation with him and listened to him. I thought he was very well prepared. He understood the subjects that we talked about and he’s obviously very bright. But beyond that there is no relationship.”
On what shareholders can expect with Bank of America:
LEWIS: We’re going to have a thing of beauty called Bank of America when this economy turns.
GLICK: So, you’ll bring them back the equity that they’ve lost over the past year?
LEWIS: That would be the intention.
On parts of the business he is most concerned about:
“I’m most concerned about credit quality related to the consumer – card, home equity, even a little bit of deterioration with mortgages, even the prime mortgages. Fortunately, we didn’t do the subprime - that stopped in 2001. But, credit in general is deteriorating on the consumer side. But, the good news so far is that the capital markets business has done a lot better and so you’re not having the write downs and the credit deterioration. So, it’s becoming more like an old fashioned recession when you’re dealing with credit as the singular issue, as opposed to two issues at once. And so, the good news is that you’ve got some capital markets offset. But, there’s no question as unemployment rises, we’re going to have credit deterioration.”
On Bank of America’s refinancing business:
“Well we’re having five and six billion dollar days of applications and so it is on fire. Our countrywide business in addition to the old Bank of America business is absolutely on fire in a positive sense and I thin people underestimate the effect on the economy that it’s going to have because now you’ve got the stimulus program but now on top of that you’ve got people getting their monthly payments down pretty substantially. And so, I think that double edged effect is going to have a major impact on the economy.”
On positive indicators in the economy:
“Actually, it’s the purchases that give us a lot of hope that things are starting to bottom at least, and the sales activity that’s picking up is in places that went down the furthest. I mean, Inland Empire in California which is sort of the poster child for the downturn has seen signs of improvement, so we’re encouraged but you know, it’s limited. But, anytime that you’re looking at a bottom or getting near a bottom in a recession, thing get mixed, you know, not everything is bad.” Sphere: Related Content
Lastly, Ken should not use the word "hero" to describe the Fed: infinite piggy bank that will fund all of his undiligenced M&A and 90 cent mismarked toxic assets is much more appropriate.
The full fox business news interview is presented below: we recommend readers
On what he wants for the future:
“I plan to be in the job because I want to get us through this. I want to be on the other side of it to take advantage of the upside and no bank in the world will be better positioned than we will across all the products and geographies. And I also want to see the TARP money paid back. And then finally, I want to see this bank earn $30 Billion after tax and that’s about what it should be making in good times.”
On Brian Moynihan as a CEO successor:
“He absolutely could be as well as several others on the management team. I think the world of Brian. He’s outstanding. He’s got so much talent. He’s so bright. But, we have a lot of people on my management team that would fit that description as well.”
On differences between Bank of America and Citi:
“I don’t want to bash Citigroup, but there are some striking comparisons. First, I mentioned our core deposit levels. We grew our deposits $42 billion last year. We didn’t have a loss of deposits. We made $4 billion last year after tax. We didn’t lose money. So there are some striking differences. And then finally, when we were asked to go to Washington and asked to take $15 billion of the first TARP money, we had just raised $10 billion in common. We didn’t need more money. We did it for the better good. I feel like I’m living the saying, ‘no good deed goes unpunished’ because it is not a fair comparison.”
On December bonuses paid at Merrill Lynch:
“I can’t talk a lot about it because there’s litigation and I’ve been subpoenaed by the Attorney General of New York and so you can’t speak about your testimonies in those activities but I’ll say what I’ve said before….Merrill Lynch was a separate, publically owned company. We had an agreement where we could advise on incentives but the final agreement was decided on by the board of directors and the chair of the compensation committee and we did not own them until January 1st 2009. And so, that is the explanation I have given in the past and will continue to.
On whether he overpaid for Merrill Lynch:
“We’ll never know. The critics would say we should have waited until Monday and have things fall apart and then get it at a bargain rate but they did have other deal offers out there. And so, we weren’t the only one trying to do a deal. And so, what would have happened, I have no idea. All I know is, I’m very pleased they’re part of the company at the moment.”
On how he feels about the Merrill Lynch acquisition:
“From an overall standpoint, we are very, very pleased that Merrill Lynch has been a part of our company during the first quarter. The timing could not have been better. A number of deals – you mentioned Pfizer and Wyeth, Dow Chemical, that deal we were involved in, the homebuilder deal you mentioned we were involved in. And so, you take the investment banking activity in addition to a lot of debt capital being raised that we participated in and then plus the capital markets activities – it has really been a boost to revenue for Bank of America.”
On whether he will be judged for the Merrill Lynch acquisition:
“That doesn’t bother me as much as making the judgment on a three month basis. This is a very important acquisition for Bank of America and you should judge that over three to five years. But, the point is we haven’t even reported earnings for the three months yet. And so, it seems to me that it’s just a little premature to make a judgment on such a short time frame. That’s the only thing that bothers me.”
On whether he should have disclosed more about Merrill’s losses:
“No, I think we’ve done everything we were supposed to do, and that will come out as we have these cases tried, and I have no doubt that we did the right thing.”
On Merrill Lynch’s toxic assets:
“Well, there’ve been some pretty severe markdowns already, and so we know they’re marked to market in the case that there are markets. And so, we feel we’re going in with a pretty good position and things could improve. So, I feel just as good about the deal as the day we signed it. As you mentioned, once you get past the current event, virtually nobody says that it’s not a good strategic fit and that’s what I’m looking at.”
On the best parts of Merrill Lynch [ed. "best parts"?]:
“On the investment banking side, for instance, obviously we’ve said capital markets activities were a good fit. On the investment banking side, the deals that I mentioned the Pfizer deal and the Dow deal – were deals that neither company would have had the position that we ended up having by themselves. And so, we’re seeing the benefits of being this corporate bank and having the investment banking business on Merrill on top of the investment banking business we already have. And so, we’re seeing real, live evidence in these deals that we’re getting positioned as a result of coming together.”
On what he thinks of the Fed and the TALF program:
“I haven’t really kind of thought through the three years to five years but they have been working, they have been providing liquidity and I think the Fed has been kind of a hero here in terms of providing the liquidity they have and getting interest rates down on mortgages. If they had not done some of the things they have done we’d be in a lot worse shape than we are.
On whether they will separate the role of Chairman and CEO:
“I don’t think the breakup of the Chairman and CEO is necessarily a bad thing, but I don’t think it’s a good thing necessarily either. Think about the 4 or 5 banks that had the massive losses and insurance companies as well – AIG, RBS, Citigroup, UBS – they have 2 common characteristics in 2008: first, the lost tens of billions of dollars – perhaps the most massive losses in the history of the financial services industry – and they had separate chairmen and CEOs. I rest my case. It’s not the be all and end all.”
On his relationship with Obama:
“I had never met him until we got invited to Washington, and so there is no relationship other than having had that conversation with him and listened to him. I thought he was very well prepared. He understood the subjects that we talked about and he’s obviously very bright. But beyond that there is no relationship.”
On what shareholders can expect with Bank of America:
LEWIS: We’re going to have a thing of beauty called Bank of America when this economy turns.
GLICK: So, you’ll bring them back the equity that they’ve lost over the past year?
LEWIS: That would be the intention.
On parts of the business he is most concerned about:
“I’m most concerned about credit quality related to the consumer – card, home equity, even a little bit of deterioration with mortgages, even the prime mortgages. Fortunately, we didn’t do the subprime - that stopped in 2001. But, credit in general is deteriorating on the consumer side. But, the good news so far is that the capital markets business has done a lot better and so you’re not having the write downs and the credit deterioration. So, it’s becoming more like an old fashioned recession when you’re dealing with credit as the singular issue, as opposed to two issues at once. And so, the good news is that you’ve got some capital markets offset. But, there’s no question as unemployment rises, we’re going to have credit deterioration.”
On Bank of America’s refinancing business:
“Well we’re having five and six billion dollar days of applications and so it is on fire. Our countrywide business in addition to the old Bank of America business is absolutely on fire in a positive sense and I thin people underestimate the effect on the economy that it’s going to have because now you’ve got the stimulus program but now on top of that you’ve got people getting their monthly payments down pretty substantially. And so, I think that double edged effect is going to have a major impact on the economy.”
On positive indicators in the economy:
“Actually, it’s the purchases that give us a lot of hope that things are starting to bottom at least, and the sales activity that’s picking up is in places that went down the furthest. I mean, Inland Empire in California which is sort of the poster child for the downturn has seen signs of improvement, so we’re encouraged but you know, it’s limited. But, anytime that you’re looking at a bottom or getting near a bottom in a recession, thing get mixed, you know, not everything is bad.” Sphere: Related Content
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Bank Of America Needs $36.6 Billion More Capital According to Oppenheimer
A research piece from Oppenheimer states that BofA needs to raise over $36 billion in equity to be in line with peers. Analyst Chris Kotowski says that due to inability to access the equity capital markets, BofA will be forced to follow in Citi's footsteps and convert preferred shares to common stock. Despite Ken Lewis' numerous claims that the bank has turned the corner, especially with the uber strong January and February performance, more dilution and taxpayer subsidies may be just a matter of time.
“It is perhaps unusual to model highly dilutive equity raises into earnings forecasts, but we believe that in the current environment, until credit quality stabilizes and capital requirements are more precisely known, it is the prudent thing to do,” Kotowski wrote.This action would allow the company to double its low tangible equity capital as percentage of risk-weighted assets ratio to 6%, which would fall in line with the 6.3% ratio of its peers. It is unclear how this action would jive with Lewis' reassurance that the bank will not need to raise any more capital in the future, nor how BofA shareholders would respond to this dilution. Of course, it also means that as hedge funds pile into a Citi comparable common-preferred arbitrage strategy at BofA, we will see more potential mega squeezes in the future. Sphere: Related Content
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Sunday, March 29, 2009
Exclusive: AIG Was Responsible For The Banks' January & February Profitability
Zero Hedge is rarely speechless, but after receiving this email from a correlation desk trader, we simply had to hold a moment of silence for the phenomenal scam that continues unabated in the financial markets, and now has the full oversight and blessing of the U.S. government, which in turns keeps on duping U.S. taxpayers into believing everything is good.
I present the insider perspective of trader Lou (who wishes to remain anonymous) in its entirety:
"AIG-FP accumulated thousands of trades over the years, all essentially consisted of selling default protection. This was done via a number of structures with really only one criteria - rated at least AA- (if it fit these criteria all OK - as far as I could tell credit assessment was completely outsourced to the rating agencies).
Main products they took on were always levered credit risk, credit-linked notes (collateral and CDS both had to be at least AA-, no joint probability stuff) and AAA or super senior portfolio swaps. Portfolio swaps were either corporate synthetic CDO or asset backed, effectively sub-prime wraps (as per news stories regarding GS and DB).
Credit linked notes are done through single-name CDS desks and a cash desk (for the note collateral) and the portfolio swaps are done through the correlation desk. These trades were done is almost every jurisdiction - wherever AIG had an office they had IB salespeople covering them.
Correlation desks just back their risk out via the single names desks - the correlation desk manages the delta/gamma according to their correlation model. So correlation desks carry model risk but very little market risk.
I was mostly involved in the corporate synthetic CDO side.
During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent - these were whole portfolio unwinds. The size of these unwinds were enormous, the quotes I have heard were "we have never done as big or as profitable trades - ever".
As these trades are unwound, the correlation desk needs to unwind the single name risk through the single name desks - effectively the AIG-FP unwinds caused massive single name protection buying. This caused single name credit to massively underperform equities - run a chart from say last September to current of say S&P 500 and Itraxx - credit has underperformed massively. This is largely due to AIG-FP unwinds.
I can only guess/extrapolate what sort of PnL this put into the major global banks (both correlation and single names desks) during this period. Allowing for significant reserve release and trade PnL, I think for the big correlation players this could have easily been US$1-2bn per bank in this period."
For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman's terms:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.
In simple terms think of it as an auto dealer, which knows that U.S. taxpayers will provide for an infinite amount of money to fund its ongoing sales of horrendous vehicles (think Pontiac Azteks): the company decides to sell all the cars currently in contract, to lessors at far below the amortized market value, thereby generating huge profits for these lessors, as these turn around and sell the cars at a major profit, funded exclusively by U.S. taxpayers (readers should feel free to provide more gripping allegories).
What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.
For banks to proclaim their profitability in January and February is about as close to criminal hypocrisy as is possible. And again, the taxpayers fund this "one time profit", which causes a market rally, thus allowing the banks to promptly turn around and start selling more expensive equity (soon coming to a prospectus near you), also funded by taxpayers' money flows into the market. If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day.
And the conspiracy thickens.
Thanks to an intrepid reader who pointed this out, a month ago ISDA published an amended close out protocol. This protocol would allow non-market close outs, i.e. CDS trade crosses that were not alligned with market bid/offers.
I present the insider perspective of trader Lou (who wishes to remain anonymous) in its entirety:
"AIG-FP accumulated thousands of trades over the years, all essentially consisted of selling default protection. This was done via a number of structures with really only one criteria - rated at least AA- (if it fit these criteria all OK - as far as I could tell credit assessment was completely outsourced to the rating agencies).
Main products they took on were always levered credit risk, credit-linked notes (collateral and CDS both had to be at least AA-, no joint probability stuff) and AAA or super senior portfolio swaps. Portfolio swaps were either corporate synthetic CDO or asset backed, effectively sub-prime wraps (as per news stories regarding GS and DB).
Credit linked notes are done through single-name CDS desks and a cash desk (for the note collateral) and the portfolio swaps are done through the correlation desk. These trades were done is almost every jurisdiction - wherever AIG had an office they had IB salespeople covering them.
Correlation desks just back their risk out via the single names desks - the correlation desk manages the delta/gamma according to their correlation model. So correlation desks carry model risk but very little market risk.
I was mostly involved in the corporate synthetic CDO side.
During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent - these were whole portfolio unwinds. The size of these unwinds were enormous, the quotes I have heard were "we have never done as big or as profitable trades - ever".
As these trades are unwound, the correlation desk needs to unwind the single name risk through the single name desks - effectively the AIG-FP unwinds caused massive single name protection buying. This caused single name credit to massively underperform equities - run a chart from say last September to current of say S&P 500 and Itraxx - credit has underperformed massively. This is largely due to AIG-FP unwinds.
I can only guess/extrapolate what sort of PnL this put into the major global banks (both correlation and single names desks) during this period. Allowing for significant reserve release and trade PnL, I think for the big correlation players this could have easily been US$1-2bn per bank in this period."
For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman's terms:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.
In simple terms think of it as an auto dealer, which knows that U.S. taxpayers will provide for an infinite amount of money to fund its ongoing sales of horrendous vehicles (think Pontiac Azteks): the company decides to sell all the cars currently in contract, to lessors at far below the amortized market value, thereby generating huge profits for these lessors, as these turn around and sell the cars at a major profit, funded exclusively by U.S. taxpayers (readers should feel free to provide more gripping allegories).
What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.
For banks to proclaim their profitability in January and February is about as close to criminal hypocrisy as is possible. And again, the taxpayers fund this "one time profit", which causes a market rally, thus allowing the banks to promptly turn around and start selling more expensive equity (soon coming to a prospectus near you), also funded by taxpayers' money flows into the market. If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day.
And the conspiracy thickens.
Thanks to an intrepid reader who pointed this out, a month ago ISDA published an amended close out protocol. This protocol would allow non-market close outs, i.e. CDS trade crosses that were not alligned with market bid/offers.
The purpose of the Protocol is to permit parties to agree upfront that in the event of a counterparty default, they will use Close-Out Amount valuation methodology to value trades. Close-Out Amount valuation, which was introduced in the 2002 ISDA Master Agreement, differs from the Market Quotation approach in that it allows participants more flexibility in valuation where market quotations may be difficult to obtain.Of course ISDA made it seem that it was doing a favor to industry participants, very likely dictating under the gun.
Industry participants observed the significant benefits of the Close-Out Amount approach following the default of Lehman Brothers. In launching the Close-Out Amount Protocol, ISDA is facilitating amendment of existing 1992 ISDA Master Agreements by replacing Market Quotation and, if elected, Loss with the Close-Out Amount approach.
"This is yet another example of ISDA helping the industry to coalesce around more efficient and effective practices, while maintaining flexibility," said Robert Pickel, Executive Director and Chief Executive Officer, ISDA. "The Protocol permits parties to value trades in the way that is most appropriate, which greatly enhances smooth functioning of the market in testing circumstances."
And, lo and behold, on the list of adhering parties, AIG takes front and center stage (together with several other parties that probably deserve the microscope treatment).
So - in simple terms, ISDA, which is the only effective supervisor of the Over The Counter CDS market, is giving its blessing for trades to occur (cross) below where there is a realistic market bid, or higher than the offer. In traditional equity markets this is a highly illegal practice. ISDA is allowing retrospective arbitrary trades to have occurred at whatever price any two parties agree on, so long as the very vague necessary and sufficient condition of "market quotations may be difficult to obtain" is met. As anyone who follows CDS trading knows, this can be extrapolated to virtually any specific single-name, index or structured product easily. In essence ISDA gave its blessing for below the radar fund transfers of questionable legality. The curious timing of this decision and the alleged abuse of CDS transaction marks by and among AIG and the big banks, is striking to say the least.
This wholesale manipulation of markets, investors and taxpayers has gone on long enough.
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Friday, March 27, 2009
Ken Lewis: fan of investment bank?
After BoA's IB tanked in Q3, '07 Ken uttered the infamous "I never say never, but I've had all the fun I can stand in investment banking at the moment." Quite a turnaround then...
If I was a shareholder, I would view the IB as a deadweight to the cash cows of the commercial operation. Even if we say "what's done is done", on a going forward basis the outlook is still pretty grim as deals are not happening, very few IPOs coming to market, trading flow is at all time lows and prop trading is a complete ghost town. Lewis gave an implicit backing of the combined IB/CB model with the ML purchase but since then has done a shitty job of communicating his vision for why or his plan for how. Sphere: Related Content
If I was a shareholder, I would view the IB as a deadweight to the cash cows of the commercial operation. Even if we say "what's done is done", on a going forward basis the outlook is still pretty grim as deals are not happening, very few IPOs coming to market, trading flow is at all time lows and prop trading is a complete ghost town. Lewis gave an implicit backing of the combined IB/CB model with the ML purchase but since then has done a shitty job of communicating his vision for why or his plan for how. Sphere: Related Content
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Tuesday, March 3, 2009
Bank Of America Downgraded To A From A+, Outlook Negative
From S&P downgrade just issued:
We downgraded BofA one notch because we believe that the general economic weakness will persist and that in turn, earnings pressures for BofA will be more intense than we anticipated as recently as Dec. 19, 2008, the date of our last downgrade of BofA. BofA's creditworthiness has deteriorated given its exposure to consumer credit and more generally to various asset types that have approached--and, in certain instances, exceeded--the stress tests we used as a basis for our Dec. 19, 2008, sector review of large complex banks and brokers.
In lowering the counterparty credit rating on BofA by no more than one notch, we are placing a significant degree of emphasis on our expectation for the availability of future extraordinary government support. This expectation lifts our ratings on BofA to one notch above the stand-alone credit profile. Specifically, the ratings reflect a combination of expected extraordinary external support from the U.S. government for highly systemically important U.S. financial institutions and BofA's own credit characteristics. In particular, BofA has received explicit support from the U.S. government of $45 billion of hybrid securities plus an additional $4 billion investment as part of a government loss-sharing agreement.
The loss-sharing agreement with the U.S. government covers $118 billion of BofA's riskiest exposures. The terms of the agreement limit BofA's loss exposure to the first $10 billion and 10% of the losses thereafter. However, our concern extends beyond asset exposures. Government support gives BofA more time and flexibility to manage the integration of Merrill Lynch and its troubled asset portfolio without forced liquidations of assets.
Outlook
The outlook is negative. Our ratings on BofA reflect our expectation for a material weakening in the operating environment leading to declines in earnings. We believe that further write-downs associated with the Countrywide and Merrill Lynch acquisitions are also a possibility. More downgrades could follow if, among other potential factors, losses were to continue to pressure common equity levels. We could revise the outlook to stable if BofA's core earnings and general business dynamics prove resilient through the current cycle downturn, as better-than-currently-projected core earnings or improving asset-quality measures and capital levels would demonstrate. However, we view this as unlikely. Over the long term, as explicit government support becomes less necessary, we expect the issuer credit rating and our stand-alone assessment to converge at the current issuer credit rating level, at the stand-alone profile, or if we lower the stand-alone assessment, somewhere in between. Sphere: Related Content
We downgraded BofA one notch because we believe that the general economic weakness will persist and that in turn, earnings pressures for BofA will be more intense than we anticipated as recently as Dec. 19, 2008, the date of our last downgrade of BofA. BofA's creditworthiness has deteriorated given its exposure to consumer credit and more generally to various asset types that have approached--and, in certain instances, exceeded--the stress tests we used as a basis for our Dec. 19, 2008, sector review of large complex banks and brokers.
In lowering the counterparty credit rating on BofA by no more than one notch, we are placing a significant degree of emphasis on our expectation for the availability of future extraordinary government support. This expectation lifts our ratings on BofA to one notch above the stand-alone credit profile. Specifically, the ratings reflect a combination of expected extraordinary external support from the U.S. government for highly systemically important U.S. financial institutions and BofA's own credit characteristics. In particular, BofA has received explicit support from the U.S. government of $45 billion of hybrid securities plus an additional $4 billion investment as part of a government loss-sharing agreement.
The loss-sharing agreement with the U.S. government covers $118 billion of BofA's riskiest exposures. The terms of the agreement limit BofA's loss exposure to the first $10 billion and 10% of the losses thereafter. However, our concern extends beyond asset exposures. Government support gives BofA more time and flexibility to manage the integration of Merrill Lynch and its troubled asset portfolio without forced liquidations of assets.
Outlook
The outlook is negative. Our ratings on BofA reflect our expectation for a material weakening in the operating environment leading to declines in earnings. We believe that further write-downs associated with the Countrywide and Merrill Lynch acquisitions are also a possibility. More downgrades could follow if, among other potential factors, losses were to continue to pressure common equity levels. We could revise the outlook to stable if BofA's core earnings and general business dynamics prove resilient through the current cycle downturn, as better-than-currently-projected core earnings or improving asset-quality measures and capital levels would demonstrate. However, we view this as unlikely. Over the long term, as explicit government support becomes less necessary, we expect the issuer credit rating and our stand-alone assessment to converge at the current issuer credit rating level, at the stand-alone profile, or if we lower the stand-alone assessment, somewhere in between. Sphere: Related Content
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Friday, January 23, 2009
Bank of Countrywide Lynch Layoff Update
Yesterday all of the F/X research desk
Today virtually all the F/X sales and traders Sphere: Related Content
Today virtually all the F/X sales and traders Sphere: Related Content
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